Chapter 06 · Section 6.1

Ratio Backspread-Bearish

This ratio backspread is 45 days before expiration. Considering only the bearish side of the market, which of the following statements are true?

• a) An increase in volatility decreases profit/loss.
  No. On the bearish side of the market, you are net long options. An increase in volatility, before expiration, will increase the long options' time value and therefore increase your profit/loss.
  b) An increase in volatility increases profit/loss.
  c) The passage of time decreases profit/loss.
  d) The passage of time increases profit/loss.
  e) b and c
  f) a and b

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